The Government has published a summary of responses to its Call for Evidence: Simplifying the VAT Land Exemption. This consultation clearly generated a lot of interest – HMRC received 73 responses.
BUFDG responded to this consultation in July 2021, - please see our response here.
Areas of difficulty that were highlighted in responses included:
- anti-avoidance rules for the option to tax;
- record of an option to tax and the need for some form of ‘real time’ accessible public record of the land and properties that had been previously opted;
- Short-term arrangements, such as trading concessions, serviced offices and conference facilities, where it is unclear if the supply should be treated as a property letting or as the provision of facilities;
- Mixed-use developments that include both commercial and residential areas, such as student accommodation with ground floor retail;
- The rules surrounding overage, rights to light, call options and dilapidations where HMRC’s guidance and overall position is said to be unclear; and
- Inadequacy of HMRC’s guidance
Following the consultation, the Government:
- does not intend to take any further action regarding any of the potential options previously discounted by the Office of Tax Simplification; and
- agrees that linking the VAT treatment to an independent land register would be ineffective
Action that will/may be taken includes:
- Better guidance on areas such as dilapidations, overages, call options and rights of light. (A working group has been set-up with members of the Land Property Liaison Group and work on some areas has started);
- HMRC are going to further explore if it is possible to establish a workable definition of “short term” or “minor interests” with a view to making such supplies subject to VAT;
- the Government would like to discuss further the implications of making most supplies of land subject to VAT with a limited number of exceptions – these is seen as a long term aim; and
- HMRC may look to establish a more comprehensive and accessible register of existing options to tax and reviewing the anti-avoidance rules relating to the option to tax.
So overall, for the time being the status quo remains.
If you have any questions, please contact Andrea.
08 December 2021 
Andrea Marshall, Tax Specialist
